Hospitals Press CMS to Rethink Proposed FY23 Medicare IPPS Rates

Medicare inpatient reimbursement cuts slated to take effect in the 2023 fiscal year would threaten access to care at hospitals, which are already facing substantially higher costs because of the ongoing COVID-19 pandemic, according to the American Hospital Association (AHA).

CMS has proposed a 3.2 percent increase in Medicare inpatient reimbursement rates through the FY 2023 Hospital Inpatient Prospective Payment System (IPPS) and Long Term Care Hospitals (LTCH PPS) Proposed Rule. The increase, which CMS estimated to add $1.6 billion in IPPS payments next year, reflects a 3.1 percent hospital market basket update, a 0.4 percentage point reduction for productivity adjustment, and a 0.5 percentage point increase for a documentation and coding adjustment.

However, the proposed FY 2023 rates, combined with the previous year’s 2.5 percent increase, are “woefully inadequate and do not capture the unprecedented inflationary environment,” AHA said in a letter to CMS in June.

Now, the leading hospital association is saying the rates and other policies in the proposed rule would lead to net decreases in Medicare inpatient reimbursement.

“CMS made financial projections based on historical data that do not align with what has transpired during the past few years,” explained Rick Pollack, president and CEO of AHA. “The economic ‘steady-state’ assumptions of past trends have been upended by the reality of the pandemic, historic inflation levels and many other factors. As a result, CMS’ proposed market-basket and productivity update would inadequately reimburse hospitals and health systems and further exacerbate the challenges of ensuring access to care in communities.”

Hospitals have faced substantial growth in expenses since the onset of the COVID-19 pandemic. AHA pointed to data from several reports over the last year, which have shown that many hospitals—over a third, according to one report—are operating in the red because of the higher costs of prescription drugs, labor, and supplies. Hospitals have also faced significant financial losses over the past two years as facilities managed COVID-19 patients, community shutdowns, and other consequences of a global pandemic.

“On top of these increased expenses, we continue to face Medicare payment cuts that further threaten our ability to care for our patients and communities,” Pollack stated. “Medicare and Medicaid, which account for more than 60 [percent] of all care provided by hospitals and their caregivers, already reimburse less than the cost of providing care. And their reimbursement rates are virtually non-negotiable.”

The good news, Pollack added, is that the FY 2023 IPPS rates are not finalized yet.

“[W]e have an opportunity to influence the agency to make these necessary fixes,” Pollack said.

The AHA is urging healthcare stakeholders to speak with their legislators, some of whom are taking the issue on themselves.

Senators Bob Menendez (D-NJ) and Kevin Cramer (R-ND) circulated a “Dear Colleague” letter last week, which the AHA obtained. The letter urges CMS to use its authority to update the proposed payment update in the final FY 2023 IPPS rule.

“Conditions like the ones currently facing hospitals require a heightened review of payment policy,” the Senators wrote. “We respectfully request that CMS use its special exceptions and adjustments authority to make a retrospective adjustment to account for the difference between the market basket update that was implemented for FY 2022 and the current projected FY2022 market basket.”

“In addition, we urge CMS to consider holding off on the productivity cut for FY2023. These important changes will ensure Medicare payments for acute care services more accurately reflect the cost of providing hospital care today and for the coming year,” they added.

CMS is currently reviewing the rule. The comment period ended on June 17.